Suppose a company offers a standard insurance contract with a premium (r) of $1,000 and a payout(q) of $10,000. Suppose that Eleanor earns a healthy state income of $30,000, a sick state income of$20,000, and has a 5% chance of becoming ill.From this information, you can determine that the expected profit for the insurance company islikely:O positiveO equal to zeroO negative

Insurance company collects premium from customers and earn money if they do not occur expenses.

Answered: of $10,000. Suppose that 20,000, and…

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of $10,000. Suppose that 20,000, and has a 5% chan om this information, you c ely: positive equal to zero

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter5: Probability: An Introduction To Modeling Uncertainty

Section: Chapter Questions

Problem 17P: The probability distribution for damage claims paid by the Newton Automobile Insurance Company on...

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Question

Suppose a company offers a standard insurance contract with a premium (r) of $1,000 and a payout
(q) of $10,000. Suppose that Eleanor earns a healthy state income of $30,000, a sick state income of
$20,000, and has a 5% chance of becoming ill.
From this information, you can determine that the expected profit for the insurance company is
likely:
O positive
O equal to zero
O negative

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